I've always contributed to Roth IRA for the previous calendar year right before the deadline in April. The past year, I was over the limit and thus won't contribute this month. However, my income for this current year is less, and will probably be below the limit.

Should I contribute to the current year RothIRA before I actually know my full year's salary? I can project it of course, and it will be close, however my income sometimes varies higher or lower and I might exceed the limit.

What options do I have if I exceed the limit and have already funded the Roth IRA? Will there be a penalty?

So uh, like, why don't you wait until tax day or Jan 1 at the earliest to make that decision?
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user11865Apr 3 '14 at 23:22

"The past year, I was over the limit and thus won't contribute this month." Have you considered a backdoor Roth IRA contribution -- contribute to a Traditional IRA, and then convert to a Roth IRA? There is no income limit.
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user102008Apr 3 '14 at 23:27

@quantycuenta: The earlier you contribute, the more time for it to grow tax-free.
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user102008Apr 3 '14 at 23:28

@user102008 One year will make no difference over the long run.
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user11865Apr 4 '14 at 3:58

Or just contribute to Traditional and roll to Roth? That's what I always do as I can never contribute to a Roth.
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AbraCadaverApr 3 '14 at 18:26

FYI, when I found out I had to do #1 a few years ago, it was a nightmare and a half. I imagine if you know exactly what you're doing (or if you have an accountant do it for you) then it's not so bad, but that experience (and the complications it caused in my tax return for the next two years) made me swear off ever again contributing to an IRA before Jan 1. :(
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dg99Apr 4 '14 at 0:27

You can always withdraw your 2014 Roth contributions plus any earnings therefrom
from your Roth IRA account by April 15, 2015. In this case, the earnings are
taxable income to you (in the year withdrawn, 2014 or 2015 as the case may be,
if I remember correctly). Or you can re-characterize the contributions as a contribution to your Traditional IRA
in which case it is as if the Roth IRA contributions had never happened at all
and your contribution(s) were in fact made to the
Traditional IRA from Day One (and so the earnings stay in the IRA and are not
taxable until withdrawn). The Traditional IRA contributions might not be
tax-deductible and so remember to file Form 8606 (usually done with the
tax return) so that the IRS knows that some part of your Traditional IRA
is post-tax money and so it should not be taxed again when it comes out
of the IRA in later years. (This is called the basis of your IRA).
If you fail to do so, the IRS position is that the basis is 0, and
everything coming out of the Traditional IRA is taxable income.

If you do not have any money in pre-tax IRAs, you can just do a backdoor Roth IRA contribution -- contribute to Traditional IRA and then convert to Roth IRA -- regardless of how much your income will be this year.

If you do a Roth IRA contribution now and later find out you're over the limit before the tax due date, and you want to still have the money in Roth IRA, as littleadv and Dilip Sarwate mentioned, you can either a) re-characterize the Roth IRA contribution as a Traditional IRA contribution, and then convert to Roth IRA (basically, replicating a backdoor Roth IRA contribution, but with a long delay between contribution and conversion); or b) withdraw the contribution + earnings out, and then make a backdoor Roth IRA contribution from scratch.

But either of these ways will cause you to pay taxes on the earnings from when you contributed to when you rectified it: with (a), you pay taxes on earnings on conversion; and with (b), you pay taxes on the earnings when you withdraw the contributions before tax due date.

On the other hand, if you had done a backdoor Roth IRA contribution to begin with, you don't pay taxes on these earnings.

And (assuming you have no money in pre-tax IRAs), a backdoor Roth IRA contribution is essentially identical to a regular Roth IRA contribution, except there's no income limit. There is no downside to it. So even if there's a remote chance that you'll go over the limit, I would suggest going with that.